PayPal Is Cracking Down on Bitcoin Sellers

PayPal does not want people selling Bitcoin on its platform. It appears that related goods and services, such as Bitcoin mining rigs -- that is, specialized computers designed to mine the cryptocurrency by solving complex math problems -- may also be forbidden.

Users on Bitcointalk, a popular online discussion forum for the Bitcoin community, are indignant Wednesday following a report that PayPal is enforcing a draconian ban on all things Bitcoin. User newguy05 wrote that his account had been suspended after he sold some Casascius bitcoins -- collectible coins of brass and other metals. Each coin comes with its own Bitcoin address and a private key to access an amount of the digital money equal to the purported value of the physical coin. They are often seen in pictures illustrating media reports about Bitcoin.

"Paypal has largely ignored and allowed physical Bitcoin sales until beginning of this year when some kind of new policy triggered a massive account review on everything Bitcoin-related that's considered high value sales, including physical coins," newguy05 wrote.

In an earlier post dated Feb. 4, newguy05 said that "PayPal has started a massive banning campaign on accounts selling anything Bitcoin-related, whether it's mining equipment, ebooks, or the currency itself."

Not everyone will be shocked by this news. Some see the cryptocurrency as a natural enemy of PayPal, because the sort of transaction fees that PayPal charges as a matter of course are nonexistent in person-to-person Bitcoin transactions.

According to a PayPal representative, merchants who sell Bitcoin mining equipment are in the clear and can continue to offer PayPal as a payment option. The company expects all participating merchants to follow "the policies we've put in place to protect both buyers and sellers who use PayPal," the spokesperson said.

But PayPal's policies toward Bitcoin may have recently been altered, according to one employee. At time of writing, however, details on what these policies entail and when they were implemented were not available.

The effect of those policies is clear from PayPal's email to newguy05 notifying him that his seller account had been suspended. "We have reviewed your PayPal account and found that you are operating as an e-currency dealer/exchanger including the sale of electronic media of exchange (such as electronic money or digital currency)," the email reads. "Per our current Acceptable Use Policy for Money Service Businesses, PayPal may not be used to operate a currency exchange, bureau de change or check cashing business."

The email goes on to ask for a full listing of the seller's products and services, an explanation of his business model, a list of all websites that will be used for payments and more. In order to reinstate his account, PayPal also asks the seller to sign an affidavit stating that he will comply with the company's policies.

If newguy05 is to be believed, he is not alone in his plight. Last month, PandoDaily reported that an eBay merchant named TerraHasher was claiming to have had his assets frozen by PayPal for selling Bitcoin mining equipment. TerraHasher said he intended to sue PayPal if the matter was not resolved.

Some users on Bitcointalk said that PayPal stands to gain more than most companies by embracing Bitcoin. Indeed, as early as April 2013, eBay's chief executive, John Donahoe, was quoted saying his company was "looking at Bitcoin closely. There may be ways to enable it inside PayPal."

What's more, PayPal president David Marcus has more than once spoken favorably of the cryptocurrency. Marcus himself tweeted last month that using PayPal to sell Bitcoin mining rigs is allowed.

But despite the potential for PayPal to benefit, some remain skeptical of whether the entrenched payments company and the upstart Bitcoin will become friends. "Right now [PayPal's] business does few things that Bitcoin couldn't do better and cheaper," user RodeoX said in a post on Bitcointalk. "If people start sending money around the world and shopping online for pennies per transaction, PayPal is going to have to do something different."